Correlation Between Africa Oil and ShaMaran Petroleum

Can any of the company-specific risk be diversified away by investing in both Africa Oil and ShaMaran Petroleum at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Africa Oil and ShaMaran Petroleum into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Africa Oil Corp and ShaMaran Petroleum Corp, you can compare the effects of market volatilities on Africa Oil and ShaMaran Petroleum and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Africa Oil with a short position of ShaMaran Petroleum. Check out your portfolio center. Please also check ongoing floating volatility patterns of Africa Oil and ShaMaran Petroleum.

Diversification Opportunities for Africa Oil and ShaMaran Petroleum

0.8

Correlation Coefficient

Africa Oil  ShaMaran Petroleum

Very poor diversification

The 3 months correlation between Africa and ShaMaran is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Africa Oil Corp and ShaMaran Petroleum Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ShaMaran Petroleum Corp and Africa Oil is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Africa Oil Corp are associated (or correlated) with ShaMaran Petroleum. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ShaMaran Petroleum Corp has no effect on the direction of Africa Oil i.e., Africa Oil and ShaMaran Petroleum go up and down completely randomly.

Pair Corralation between Africa Oil and ShaMaran Petroleum

Assuming the 90 days trading horizon Africa Oil Corp is expected to under-perform the ShaMaran Petroleum. But the stock apears to be less risky and, when comparing its historical volatility, Africa Oil Corp is 1.58 times less risky than ShaMaran Petroleum. The stock trades about -0.01 of its potential returns per unit of risk. The ShaMaran Petroleum Corp is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  69.00  in ShaMaran Petroleum Corp on October 12, 2024 and sell it today you would earn a total of  30.00  from holding ShaMaran Petroleum Corp or generate 43.48% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	100.0%
Values	Daily Returns

Africa Oil Corp  vs.  ShaMaran Petroleum Corp

Africa Oil Corp

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Africa Oil Corp are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain forward indicators, Africa Oil unveiled solid returns over the last few months and may actually be approaching a breakup point.

ShaMaran Petroleum Corp

Risk-Adjusted Performance

30 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in ShaMaran Petroleum Corp are ranked lower than 30 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain primary indicators, ShaMaran Petroleum unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Africa Oil and ShaMaran Petroleum

The main advantage of trading using opposite Africa Oil and ShaMaran Petroleum positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Africa Oil position performs unexpectedly, ShaMaran Petroleum can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in ShaMaran Petroleum will offset losses from the drop in ShaMaran Petroleum's long position.

The idea behind Africa Oil Corp and ShaMaran Petroleum Corp pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..